1

Introduction to
Strategic
Management
Theprimary taskof management isto make decision-long-term decisions and day-to-day decisions.
short-term effect.
effect while others have only
In other words, some of these decisions have long-term
Let us consider|two types of decision_:
(1) Decisions regarding takeover of Air Deccan by United HindustanGroup;
wwoin Breweries Merger bf associated
Lever Limited) like Brook-
companies of Hindustan Unilever Limited (formerly known
as
into organised retailing, etc.
Bond, Lipton, Pond's etc., with it;(Diversification bf Reliance Industries
from one department t o
(ii) The second set of decisions relate to, for examplestransfer of employee
to change in excise duty, andchoice
another department, jncrease/decrease in product prices in response
of advertising media for sales promotion, etc.
of decisions is of integrative nature involving
more
From decision-making point of view, the first set
while
operational/functional areas-like production operations, marketing, finance, human resource etc.,
second set of decisions fall within the domain
of functional manager. For making decisions regarding
activities stated in the first set require general management approach.
Strategic Management has evolved
principles/approaches in managing an organisation.
to understand and apply general management
environment. This has made
are running in a continuous changing
Today all types of organisations and act accordingly. Currently, most ofthe organisations
it imperative for a manager to think strategically
management.
have recognised the significance of strategic

Evolution of Strategic Management

with an idea about its historical evolution. In the
interesting to start learning qf any subject
It is
decisions in various functional areas have been evolved
management literature, techniques for making However, the development of techniques for making
with the development of management thought. business policy or
have led to the development of a new field of study :
decisions in a scientific way Out of
similar other nomenclatures like corporate planning,
corporate strategy, and strategic planning.
common. However, the current trend shows that the term
these, the termbusiness policy became more
policy and whereever business policy nomenclature
strategic management has replacedtheterm business
is followed, its emphasis is on strategic management. under:
in two contexts as
Here we can of strategic management
discuss the evolution
J. Evolution based on managerial practices.
2. Evolution based on management education.
 Introduction to Strategic Management 3

administration
delermination at the overall management level be required of all students in business and
programmne.
for all business schools in
Following these reports, business policy course was made compulsory
the American Assembly of Collegiate Business
the USA for recognition of management degree by
courses started including a course
on business
Schools. Since then, institutes offering management
central management, corporate policy, management polic
policy under the title general management, in the later half of management
course.
business policy, corporate strategy, and strategic management with more
various nomenclatures, two terms- business policy and strategic management
Out of these throughout the world
emphasis on the latter because more popular. This practice has been adopted
including India.

India
Management Education in organisations of Indian origin_coupled
with
rise and complexity of business
With the increase of adopted the modern management
organisations
techniques including
fifties late
rapid environmental changes, many
in
Formal management education in India started
management. Administrative
the techniques of strategic
with the setting up of Indian Institutes.of.Management (IMs).and
and philosophyY
and gained impetus the formative years ofthe
IIMs, the curriculum
sixties. In Ahmedabad based its
Staff College of India in the early
education borrowed
from American business
schools. The IIM

of management Harvard Model of developing and using case studies. management

teaching methodology
on the
established management
departments to impart
have institutes
universities of the country level also. A Imost all
management
Many level and s a m e at under-graduate
or diploma
programme,
education at post-graduate of the post-graduate degree
c o u r s e usually
in the later part and planning, management
offer business policy planning, corporate strategy
differs like corporate common.
which is
though the title ofthe
course more
management education in
besides strategic
agency for
management
planning the regulatory component in
policy, strategic Technical Education, as an integrative
Council of
The All India in 1990 and again in 1995,
business policy, first planning and strategic management.
c o u r s e in corporate
India, prescribed the form ofa institutes and
in of management
studies curriculum, a representative body business
Schools,
management
Indian Management a standard
curriculum, included
of while recommending Association, New
The Association departments, c o u r s e . The
Al India Management
management
university
management
as a compulsory
scientific management
in India, offers a popular
and strategic of
policy the promotion
body for
management.
course on strategic
which is a national that includes a
Delhi, in management
programme
distance education
Ap my Le acces means generalship.
which
Strategy "strategos"
been derived from Greek
of define
h e Concept the term strategy
has most of the dictionaries
origin of strategy,
Originally, this nature of art of
Because of strategy is the
ofthe general. "*military
that is,the art For example, aCCordingto
OXTOrd Dictionary,
sense.
strategy in military the instruments of warfare.
as business is not
moving or
disposing Surareey Can not be uSed in military sense
business parlance, Ihe rerm
However,in A.strategy could be
;

war situation. rules making a pattern or creating-a common

alwayslikea a set of decISion
nlan or course of action or
a pl
hread activities which are derived from the
thepattern or common
thread related to tlhe organisatjon's
policies, objectives
and goals;
those activities which move an organisation from its current position to a
elated to pursuing
desired future state;
concerned with the resources necessary for implementing a plan or following a course of action;

9 waous, damA
 Introduction to Strategic Management
connected to the strategic positioning of a firm, making trade-offs between its different activities
and creating a fit among these activities; and
the planned or actual coordination of the firm's major goals and actions, in time and space that
continuously co-align the firm with its environment.
n simplified terms, a strategy is the means to achieve objectives. In complex terms, it may possess
all the characteristics
mentioned above.
Some researchers and authors have defined
strategy in their own way:
"A strategy is a unificd, comprehensive, and integrated plan relating the strategic advantages of the
Tirm
to challenges of the environment. It is designed o ensure that the basic objectives of the enterprise
are achieved." -William F. Glueck
"Strategy is a plan or course of action which is of vital pervasive, or continuing importance to the
organisation as a whole." -Arthur Sharplin
Strategy is a course of action including the specification of resources required to achieve a specific
objective."
CIMA
After perusal ofthe various definitions ofstrategy, we can define strategy as follows: chosdai
Strategy is a long-term- course of action through which an organisation relates itself with the
environment so as to achieve its objectives. aLcofa-
Some of the important |features of a strategy are as follows
Strategy involves a choice of particularaction or activities.
2. Strategy is a function of direction. Plans are a function of how this direction is put into action.
Since strategy sets the direction, it must be formulated before plans are made.
3. Strategy is a course of action or a set of decision rules forming a pattern or creating a common
thread.
Strategy relates the business organisation to its environment.
5. Strategy may require contradictory action. A manager may take a course of action today and
revise or retrace his steps tomorrow because of changes
6.
in situations.
Strategy is concerned with the best uses of a firm resources in a changing environment.
7. A strategy is themeans used to achieyeends (objectives).
8. A strategy for firm is
a
long run plan,
a
9. Strategy is forward looking. It has orientation towardsfuture.
10. Strategy concerned with determination of basic long-term goals and objectives, adoption of
is
courses of action and allocation of resources
necessary for adopting the courses of action.
. A strategy is oriented
towards the
following basic issue
(a) What is.our business?
(b) What should it be?
(c) What are our products, functions andmarkets?
(d) What can our firm do to accomplish objectives?
12. Strategy is the patern of an organisation's response to its environment
13.
-
over time.
Strategy is the broad program for achieving an organisation's objectives and thus implemenung
its mission.
14. Strategy links the human and other resources of an organisauon and with the challenges a
risks posed by the outside world.
15. Strategy is the means which an organisation attempts to achieve its purpose. strae8» * the
means for
achieving a specified ends, can be established at any level of an organisatio
16. Strategy is concerned with matching external opportunities with corporate resourcea acceptable
levels of profit and risks.
 Introduction to Strategic Management 5
The Concept of Policy
The term 'policy' is derived from the Greek word 'politeia' relatingto polity, that is, citizen and the
Latin word polotis' meaning polished, that is, to say clear. According to New Webster English Dictionary
the policy means the art or manner of governing a nation, the line of conduct which rulers of a nation
adopt on a pariieuiar question specially with regard to foreign countries; the principle on which any
measure or course of action is based. While these descriptions of policy relate to any field, in organisational

context. Kotlerhas defined policies asfollows:

Policies define how the company will deal with stakeholders, employees, customers, suppliers,
distributors, and other important groups. Policies narrow the range of individual discretion so that
employees act consistently on important issues."
Based on the above discussion, policy may be defined as follows
A policy is the statement or general understanding which provides guidance in decision making to
members of an organisation in respect to any course of action.
On the basis of this definition, following features.of policy can be identified
1. Policies provide guidelines to the members in the organisation for deciding a course of action
and, thus, restrict their freedom inchoosing the course of action. From this point of view, policies
are

quite important in role theory. They are not an end but means to end and explain what organisational
members should do as contrast to what they
are Policies, when enforced, permit prediction of
doing.
roles with certainty.
The verbs most
2. Policies are generally expressed in a qualitative, conditional, and general way.
are to maintain, to continue, to follow, to adhere,
to provide, to assist, to
often used in stating policies
assure, to employ, to make, to produce,
and to be. Such prescriptions may be either explicit or, as i_ more
of organisational members, particularly
often the case, these may be interpreted from the behaviour
those at the top level.
3. Policy formulation is afunction ofall managers in an organisation becausesome
form ofguideline
at every levell However, the higher the
level of a manager, the
forfuture course of action is required
more important is his role in policy making.
objectives. Therefore, the policytries te
policy is formulated in the context organisational
of
4. A
contribute towardsthe achievement of organisational objectives.
Difference between Policy and Strategy
and strategy as these two terms are used interchangeably
Let us find out the difference between policy
writers though both are different
bysome
Policy S.No. Strategy
S.No.
and action 1. Strategy concerns with the direction in
1. Policy is a guideline to thinking which human and physical resources.are
of those who make decisions.
deployed,
2. Policy is contingent decision. 2. Strategy is a rule for making decision.
3. Strategy can not be delegated downward
3 Since policy provides guidelines for
in since it may require last-minute executive
decisions, it canbe delegated downward
decision.
the organisation.
4.
Policy determines the nature of firm's 4. Strategy is concerned with matching
involvementwith ils
environment. It is externai opportunities with corporate
to concern functional activities as resources at acceptable level of profit and
likely
.
1 well as the corporate whole. risk.
 Introduction to Strategic Management

8. Usually strategy is original in nature while tactics follow strategy. Though

strategy is important,
original and unique in nature, it can not be carried out without competent tactics.
9. Strategies have fewer details than tactics.
10. Strategies involves fewer people. Separate groups of managerial personnel are invol ved in strategy
formulation and its implementation. Tactics is used by all personnel in the organisation, so tactics involves
a large number of people.
11. Becausestrategy is formulated and implemented in a highly uncertain environment, its evaluation
ofeffectiveness is very much difficult. On the other hand, it is usually easier to evaluate the effectiveness
of tactics, because tactical decisions are more certain as these are taken within the framework set by
strategy.
12. Strategies are formulated from a corporate point of view, while tactics are formulated from a
functional point of view
13. Strategies, by definition, are of the highest importance to.an.organisation because they decide
the future course of action for the organisation as whole. Tactics are ofless importance because they are
concerned with specific part of the organisation.

Strategic Management
After clarifying various concepts (strategy, policy, and tactics) relevant to strategic management, it
becomes easier to define strategic management. Strategic management is a process by which an
organization tries to
assess its position within its environment (strategic analysis)
generate as well as choose a set of.options (strategic choice)
implementation of strategies
review and contro
match organizational activities to its capabilities
making major decisions regarding allocation of resources
long-term direction thatan organization is expected to take.
Let us consider some definitions of strategic management given by prominent authors. Pearce and
Robinsou have defined strategic management as under
Strátegic management is defined as the set of decisions and actions in formulation and
implementation of strategies designed to achieve the objectives of an organisation."
This definition emphasises two major aspecis,strategy formulation and its implementation_and
these aspects are oriented towards achieving organisational objectives.
Ansoff defines strategic management without mentioning strategy formulation and/or strategy
implementation: According to him,
Strategic management is a systematic approachto a major and increasingly important responsibility
of general management to position and relate the firm to its environment in a way which will assure Its
continued success and make it secure from surprises."
This definition puts emphasis on organisation-environment interface and relating the organisation
to its environment for continued success. However, what actions are required for effective organisation-
environment interface have not been specified. An appraisal of various definitions ofstrategic management
suggests that it deals with the following aspects:
1. Continuously relating the organisation to its environment.
2. Formulating suitable strategies to maintain this
relationship.
3. Implementing strategies.
 Introduction to Strategic Management
8
4. Ensuring through control that strategies are implemented properly and produce the results as

intended.
as follows:
Taking the above may define strategic management
aspects. we
Strategic management is a continuous process of relating the organisation with its environment by
suitable courses of action involving strategy formulation and ensuring that the strategy has been

implemented eflectively.
Based on this definition, we can trace out thfeatures fstategic managementwhich are as follows
1. Strategic management is basically aprocess., It has emerged out of management in other fields
wiere the concept of nmanagenienm is taken as a process for achieving certain objectives ofthe organisation.
Thus, strategic management involves establishing a framework to perform various processes. The concept
to
ofstrategicmanagement must include all general management principles and practices devoted strategy
formulation and implementation in the organisation.
2. The focus) of strategic management is on relating the organisation to its external
-
environment.
This empliasises that there is continuous interaction between the organisation and its environment taking
an open systems approach. Thus, the organisation must create adequate channel through which external
information will pass to various points in the organisation.
3. Strategic management is basicallytop management functio Thus, in order to ensure effective
top management function. it is necessary that a distinction should be made between strategic management
and operational management which emphasises day-to-day operations in the organisation, so that top
management can focus more attention on the strategic aspect rather than emphasising on operational
management. Sincethe environment oftheorganisation isalways changing providing new opportunities
and threats, top management mustspend more and more.time on this aspect.

Benefits of Strategic Management

The strategic management has been getting wide acceptance in business world since 1980. In the
beginning, it has been accepted by executives of developed nations, but today most of the multinationals
and largeCorporations have adopted it. Now executives and managers assume that strategic management
is only the approach on which success or failure of a corporation depends to a large extent. Globalisation,
liberalisationand privatisationhavemadestrategic managenment more popular andimportant.' Thompson
andStricklnd write that 'among all the things managers do, nothing affects a company's ultimate success
or failure more fundamentally than how well its management team sets the company's long-term direction,
develops competitively effective moves and business approaches and implements what needs to be done
internally to produce good day-in, day-out strategy execution. Indeed, good strategy and good strategy
execution are the most trustworthy signs of good management. They further write that "the standards
for good management rest to a very great extent on how well conceived the company's strategy is and
how competently it is executed. Any claim of talented management that disregards these standards is
likely to be false'. Some of the important benefits of strategic management are as follows:
1. Financial Benefits-Effective strategic management results ig financial benefits to the
organisations in the form of increased profit. Many research studies, particularly in the USA, have
confirmed this proposition. These studies have measured the profit performance of those companies
which have adopted strategic management approach and those who have not adopted this approach.
those not adopting strategic
Companies adopting strategic management approach outperformed
reason for this phenomenon is that thecompanies which adopt strategic
management approach. The basic
the needs of environment much more quickly
management are able torealign theirstrategies accordingtoformer
Therefore, type of companies are able to generate
than those which do not follow this approach.
more profit even in the face of environmental threats.
 Introduction to Strategic Management 9

2. Countering Uncertainty-Strategic management tries to offset environmental uncertainty by

preseribing the fiuture course of action in the light of various forecasts made by the organisation.
Forecasting and strategic planning are the basic core of strategic management and these provide a clue
about what is likely to happen in future. This process, though cannot check the happenings of future, can
provide an organisation enough time and capability to cope with these happenings. This processallows
the top management of an organisation to provide direction and control for its success. It allows the
prganisation to innovate in time to take advantage of new opportunities in the environment and reduces
its risk because it anticipates the future.
3. Clarity in Objectives and Direction-Strategic management focuses on organisational objectives
and direction of action for achieving these objectives. Sometimes, peoplein the organisation may not be
specific about its objectives because of lack of clarity and precisedefinitions. For example, often we

take profit as the objective ofa business organisation. It is too abstract to be pursued. In order to enforce
management actíons, this should be defined more precisely. When strategic management functions are
taken in a formal way, they focus on clarity of objectives by taking various forces into operation When.
the objectives are clearly spelled out, these provide clear direction to persons in theorganisationwhoare
responsible for implementing the various courses of action. Mostpeople perform better if they know
clearly what they are expected to do and where their organisation is going
a mu 4 . Organisational EffectivenessStrategic management ensures organisational effectiveness in
otnbu the given resources. Thus, for effectiveness it is not only necessary that resources are puttothe best of
séveral ways. The concept of effectiveness is that the organisation is able to achieve its objectives within

their efficiency but also that they are put in a way which ensures their maximum contribution to
which states the
organisational objectives. In fact, this can be done by taking strategic management
objectives of the organisation in the context of given resources. Therefore, each resource ofthe organisation
resources are put in
has a specific use at a particular time. Thus, strategic management ensures that
If this is done, the organisation will achieve
action in a way in which these have been specified.
effectiveness.
5. Satisfaction to the Personnel-Strategic management contributes towards organisational
effectiveness by providing satisfaction to the personnel of the organisation. In an organisation where
formal strategic management is followed, people
process more satisfied by definite prescription of
are
thereby reducing role conflict and role ambiguity, If decisions are systematised
the in the
their roles
organisation, everyone knows how to proceed, how to contribute towards organisational obiectives,
where the information may be available, who can make decisions, and so on. Such clarity will bring

effectiveness at the individual level and consequently at organisational level. Strategic management
which everything is made crystal clear.
provides all these things in the organisation through

Limitations of Strategic Management

the practical difficulties
The why management fails in strategic management emphasises
reason
an easy job of the top management. However, it can
encountered in it. Thus, strategic management is not
limitations so that top management functions within those
be more effective by recognising its various
identification of various limitations of strategic management is
parameters. From this point of view,
essential:
essential to overcome the
1.Complex and Dynamic Environment-Strategic management is
becomes a serious limitation on
problems posed by complex and dynamic environment. However, this
effective strategic management. For strategic management, we require knowledge of the trend in the
 Introduction to Strategic Management 11

they can develop future-oriented thinking which is more valuable than merely focusing on the current

operations.
4. Limitations in Implementation-There arc various problems in implementing a strategy. Though
this aspect will be discussed at a later stage at a greater length, here it is sufficient to say that many
organisational problems cannot be solved by strategic management alone but require the use of other
aspects of management. Seldom corporate strategy is as clear to organisational members as is thought by
its framers. Even the most persuasive, articulate, and specific strategy by the top management may not
carry the same meaning throughout the organisation. The internal conflicts among departments,
individuals, or organisational and personal values cannot be solved by strategic management. In many
of these cases, non-strategic management functions are more important.
The various limitations of strategic management should be weighed in the light of its contributions
to the success of the organisation. Every action has certain limitations but it does not mean that action
should not be taken. The recognition of various limitations of an action provides an opportunity to

safeguard oneself against the possible counter-effect of the action and places the individual in a better
way to make the action more effective.

tevels at which Strategy Operates

the context
Management of every organisation follows some kind of process and can be viewed in
of strategic management concept. Different business organisations, having some similar features, may
also different
have some differences according to size that relate to their strategic behaviour. There are
different from others.
levels or units within a business entity, anid some of those units can have strategies
consideration of ends
Other kinds of organisations have their own clharacteristics alongwith a common
and means. In large companies)decisions about what business approaches totake and what new moves
office while business level decisions are made by
to initiate involve senior executives in the corporate human resources,
heads of business units and product division. Functional level (marketing, finance, and other lower level
manufacturing etc.) strategies are inade by plant manager, district sales manager
are initialed at four distinct organisational levels. There
supervisorsIn/diversifiedcompanies, Srategies
strategy) Dere is a surategy
isa strategy for the company and all of its businesses as wholeCorporate
strategy). Then there is a strategy
for each separate businessthe company has diyersifiedinko (business
within a business(functional stratcgy). And, finally there are still narrower
for each specific functional unit
Corporate straiegy is differentiated from business
strategies for basic operating uniis (operatingstralegy»
this way: "In an organisation ofany size or diversity, 'corporate strategy
strategy by Kenneth Andrews in
while "business strategy less comprehensive defines the choice
usually applies to the whole enterprises,
business with the firm." In other words, business strategy
of product or service and market of individual
strategy, says Andrews, defines the
relates to the 'how' and corporate strategy to the what.a Corporate
that focuses resources to convert distinctive
business in which a compete, preferably in way
company will
competence into competitive advantages. In brief strategy operates at different
levels: corporate
we proceed to know how strategy operates at different
level, business level and functional level. Before
levels, let us take the examples of some of the companies and their field of operations as shown in
Exhibit 1.1.
12 Introduction to Strategic Manugement

Exhibit 1.1: Products of Companics

lance industries Limited: highly integrated company, produces textiles, yarns, fibres of petrochemical
products like purified terepthalic acid (PTA). linear alkyl benzene (LAB), and other fibre intermediaries.
Some of these products are used for captive consumption and remaining is sold in the market.

Hindustan Unilever Limited: a prominent consumer

product company, operates in the field of soaps,
synthetic detergents, personal products like cosmetics,
lke tea. coffee, shampoos, toothpastes, etc., foods and beverages
dairy products, staple foods, etc. and product for industrial and
speciality chemicals, animal feeds, etc. agricultural use like
Century 1Textiles Limited: a diversified company, operates In the field
pulp, and rayon. These of textiles, cement, paper and
products do not havc any relationship among themselves, either
or market-wise. technology-wise
Kodak India Limited: manufactures and sells
Gillette India Limited: photographic materials..
manufactures and sells shaving products.
First three
companies
The multi-product multi-product companies and second two companies are single-product
are
companies.
product companies have different businesses organised as different
groups. These are generally known as divisions or
view as strategic business profit centres, or from strategic
SBU
units (SBUs). management point of
concept was evolved by General Electric
business. The fundamental concept in the SBUs isCompany (GEC)pf USA to manage its multi-product
segments served by an to identify the discrete
environment, an SBU organisation. Since each
independent product /marketindependent product/market
should be created for each segment has a distinct
in Distinct Business Areas such segment. Thus
(DBAs) with each area serving the different SBUs are involved
taking up strategic managementin a
distinct segment of the
important: multi-SBU organisation, the
environment. In
1. Each SBU is
following features become
managed a portfolio of the
as
segment and clearly-defined
strategy. organisation with a clearly defined
2. Each SBU
develops its product/market
capabilities and needs. strategy tailored to its capabilities and
3. Each SBU is
needs with overall
corporate
allocated resourcesboth physical and
contributions to the
achievement of organisational objectives. human according to its needs and
As against an
organisation with multi-SBUs, single a
business unit. Naturally, operation of -product/market organisation has
strategy in these
types of organisations will single strategic
single-product company, the corporate-level be different. In
implemented at the next lower level by functionalstrategy serves the whole
business. This
a

level strategies are strategies. In multiple-product strategy is

inserted-generally
functional strategy and the strategies strategy for each SBU- between company, the business
a

among corporate-level, business-level and

are
guided by the corporate corporate strategy and
of these units
functional-level strategies for strategies. Relationshipss
SBUs firms are
presented in Figures 1.1 and 1.2 respectively. single SBU firms and
multiple
 Introduction to Strategic Management 13

Corporate Top
Strategy Management
Functional | Strategy

Operations Marketingg Financial Personnel Middle

Strategies Strategies Strategies Strategies Management
Figure 1.1:Corporate and functional strategies in single-SBUfirm)

Top
Corporate is i stwe comp oiny Management
n&tan o rfA Strategy hould compede
w sBUs ustis

SBU 2 SBU 3 SBU Top

SBU 1
Strategy Management
Strategy Strategy

mo cmcsned ur
impltwmtatiou°y
Financial Personnel Middle As
Operations Marketing Management 2us
Strategies Strategies Strategies Strategies
firm opaatump
Figure 1.2: Corporate,SBU, and functional strategies in multiple-SBU
Naskstin Pestych sSD Salsspiuomyhn
different levels.
Now let us see how strategies operate at
known as corporate strategy) occupies
Corporate-level Strategy-Corporate-level strategy (simply
and covers actions dealing withthe objectives of the firm,
the highest leyel of strategic decision making of various SBUs for optimal
acquisition and allocation of resources and coordination of strategies
of.the.organisation. The nature ofstrategic
performance. Such decisions are made by top management business or
decisions tends to be value-oriented, conceptual and less concrete than_decisions at the
functionallevel. known business strategy) operates at
Business-level Strategy-Business-level strategy (simply as

business-level andeachSBUsets its.own.strategy to makethe bestuse.of.its.resourcesinthe environment

allocation of
it faces. AI such a level, strategy is a comprehensive plan providing objectives for SBUs,
resources among functional areas and
coordination between them for making optimal contribution to
of
the achievement of corporate-level objectives. Such strategies operate within the overall strategies
constraints
the organisation. The corporate strategy sels the long-terim objectives of the firm and the broad
and policies within which an SBU operates. The corporate-level will help the SBU define
its scope of
or enhance the SBUs operations by the resources the corporate-level assigns
operattons and also-timit
 14 Introduction to Strutegic Munagement

deals
the strategies of the organisation but it
total of business
nus, coporate strategy.is not sum
on busineSs
subject-matter. While the corporate strategy is concerned with and has impact
win dilterent
and renewal rather than market
Strategy. the former is concerned with the shape and balancing of growth
execution.
Functional-level Strategy-Functional-level strategy (simply known strateE) relates
as functional
therein. Decisions at this level within the
O a single functional operation and the activities involved
constrained by Some overall
organisation are often described as tactical. Such decisions are guided and
strategic considerations. Functional strategy deals with relatively restricted plan providing objectives
that functional area and
Torspecific function, allocation of resources among different operations within
Coordination between them for optimal contribution to the achievement of the SBU and corporate-level
objectives.
is also used at
Besides three levels of strategy-corporate, business, and functional- -strategy
operating level, known as operating-level strategy. Operating-level strategy comes below functional-
level strategy and involves actions relating to various sub-functions of a major function. For example,
functional-level strategy in marketing function may be divided into various operating-levels such as
marketing research, sales promotion, sales and distribution, etc. However, in strategic management,
focus is on corporate and business-level strategies. Punctional-level and operating-level strategies are
more concerned with implementation of corporate and business-level strategies. Three levels of strategies
have different characteristics on several dimensions as shown in Table.

Table: Characteristics of decisions at different levels

Dimension Levels of strategy
Corporate Business Functional
Type of decision Conceptual Mixed Operational
Impact Critical Major Minor
Risk involved Very high Medium Low
Profit potential High Medium Low
Time horizon Long range Medium range Short range
Flexibility High Medium Low
Adaptability Low Medium
High
We can develop our understanding by taking two examples showing how strategies operate at different
levels. Exhibit 1.2 shows how strategies operate in Tata Group and Exhibit 1.3 shows how
operate in Hindustan Unilever. strategies
Exhibit 1.2 Operation of strategies in Tata Group
Tata Group comprises about 100 companies with combined turnover
a closed-knit industrial/business house, it works on the basis of a exceeding 35.000 crore. Unlike
federation of companies. In order to
achieve integration in and control of various
companies, the
Executive Office (GEO) and Business Review Committees group
has developed the concept of Group
the controlling company
(BRCs). Both these work under Tata Sons,
of the group. GEO provides group focus and looks at
and new forays. BRCs have been constituted for restructuring,
each major company. Each BRC interacts acquisition,
Sons and management between Tata
of the concerned company, it meets thrice a ycar to look at strategy and
performance and its recommendations to the Board of Directors
operational
making the of the company concerned. Thus, strategy
at
corporate-level is shared by individual companies and GEO and BRCs. Business-level
and functional-level strategies are determined by individual
companies.
 Introduction to Strategic Managemen
15

Exhibit 1.3 : Operation of strategies in Hindustan Unilever

Hindustan Unilever lLimited (HUL) is a multi-fast-moving
consumer goods company. It has grouped US
products into thred product categories: honne and personal care, foods and beverages, and industrial and
agricultural. It covers thhe entire geographical area of the country. Besides, it is also engaged in export of
products with more enphasis on products procured from third It has
parties. adopled hybrid organisation
a
structure based on functions and product divisionalisation. Strategies in HUL operate at three levels as
shown below:

Corporate-level Business-level
Issuesinvolving Strategic business units
Resource mobilisation
Beverages
Resource deployment Personal products
Merger and acquisition
Divestment
Detergents
ce cream & frozen deserts
Appropriation of earnings Export
Jssue involving in these products

Functional-level

Issuesinvolving
Technical
Marketingg
Finance
Human resources
Research
Flow of decision Corporate affairs
Flow of support Legal and secretarial

Strategic Decision Making

Strategic decisions are those which are taken during the.currenttime periad but whose primary
effect is felt during some future period. Such decisions affect organisational structures, objectives, facilities
and finances. These decisions are mostly complex and non-repetitive in nature and have fundamental
effects on the organisation. So theseare taken comparatively at higher level of management aftercareful
analysis and evaluation of various alternatives. These decisions.are related with whole organisation.
(Peter F. Drucker, a noted author and thinker,callsthesedecisigns the specifically managerial decisions.
These decisions are not only related to problem solution, but to find out the real problem': Drucker
writes that an important and difficult job of a manager in these decisions is not to find right answer but
to find right question. He is of the opinion that it is senseless to find a right answer of a wrong problem.
In these decisions, the important thing is to 'ask the right
question
According to Ansoff "Strategicdecisionsare primarily concerned with external rather than internal
problems and more specifically with theselection of the product mix which the firm will produce and
the marketsto which it willsellthus establishingan 'impedance match' between the organisation and its
environment.
16 Introduction to Strategic Management

Jauch and Glueck defines, Strategic decisions are means to achieve ends. These decisions encompass
the definition of business, products and markets to be served, functions to be performed and major
decisions
policies needed for the organisation to execute these decisions to achieve objectives." Strategic
have the following characteristics
(i) They involve significant comnmitments of the organisation's resources. factors involved
(11) Theyinvolve uncertainty/There are always several uncontrollable (environment)into future.
further
in strategic planning and unlike most other decisions, strategic decisions look
(i1) They are made by senior management
(iv) They have importantimplications for the future of the entire organisation.
of and
(V) Most importantly, strategic decisions fundamentally change the character business
are

irreversible. This means that strategic decisions involve a commitment of resources that can not be
regained,at least in short-term. relates to day-to-day activities
(vi) Strategic decisions are different from operating decisionslwhich
or current operations.
Introduction to Strategic Management 17
(g) Because strategic decisions are made in a highly uncertain environment, management must have
a huilt-in mechanism so that attention may be drawn at appropriate time for making strategic decisions.
i 1 oct
Approaches to Strategic Decision-Making
Strategic decision-making is so strategic that each organisation has its own approaches to strategic
decision-making.This is because that an organisation may differ fromother organisations in terms of:
(a) degree of formalities in decision-making process
(b) managerial power relationship; and
(c)nature of environment-from highly complex to simple and stable.
Thesedifferences determine the kind of approach individual organisations would adopt in their
decision-making process.
Ditferent management experts have classified approaches into a definite set of categories. For

example, Mintzberg hasclassified various into three forms (he has referred to these as
approaches
modes). These are

1. Entrepreneurial Approach.
2. Adaptive Approach.
3. Planning Approach.
1. Entrepreneurial Approach-This approach is adopted, generally, by heads of family-managed
organisations. In the Indian context, the business groups such as Mafatlal Group, Dabur Products,
of strategy making under this
TT.K. GrOup, Reliance Group etc., are the examples. The basic features
approach are as under
(i) The focus in this approach is on capitalising the opportunities rather than problem solving. There
is constant search of opportunities in the environment either formally or otherwise.
bold and unusual
(ii) Decision power is centralised in the entrepreneur who is capable of making
decisions. lead the
(iii) The bold and unusual decisions made in the face of environmental uncertainty,
organisation to move forward by unusual leapsand thrive with corresponding gains.
in this approach is growth and expansion in assets, turnover, and
(iv) The most important objective
market share.
Thus, decision making becomes emergent process as against formal process.
where
Suitability and Limitations-Entrepreneurial approach _uitable in those organisations
is
of a strategy. They are in a position to lead the
key strategists have very high stake in the outcomes stakeholders.
organisation from front sidelining the views of other Usually, such strategists have very
about the future scenarios,
business and have
high-risk
high level of aspirations, high level of vision
is
bearing profile. A basic advantage of this approach thethat such decisions are made which may (defy the
This is reason that such organisations outperform their
basic principles of management textbooks. Exhibit 1.4 presents examples of how organisations
counterparts adopting formal-structured approach.
have grown faster by adopting this approach.

Exhibit 1.4: Application of entrepreneurial appro8

There are numerous examples throughout the world which suggest that organisations have achieved
phenomenal growth through this approach.
research and design engineers to
1. Akio Morita, Chairman of Sony Corporation, Japan, asked his
in
design a walkman (a mini-cassette player). Pat came the reaction that this would not succeed
the market. But he insisted on that and walkman made a roaring success.
Dhirubhai Ambani, ex-Chairman of Reliance Industries, saw the business opportunity in high-
2
priced premiumfabrics in India which was unheard at that time. This made roaring success in
 18 Introduction to Strategic Management
the market. Later on, he conceived many projects based on this approach. Today, Reliance has
become number one in the
private sector in India.
3. In early 1980s, when Hero Group of Ludhiana considered addition of other products in
personal transport product, it chose to add four-store motorcycle which was not its
highly lucrative at that time as compared to scooter. In a considered
personal chit chat, Brijmohan Lal
Munjal, the present Chairman of Hero Honda Motors, commented on the choice of
in
comparison to scooter, "future motorcycle
and not by scooters. In the
personal transport mode will be dominated by motorcycles
of
age increasing fuel cost and
WOuld have an
edge over scooters." Though many did not speed-oriented transport, motorcycles
right. Today. Hero Honda's agree with him, he proved himself
motorcycle
being the World's number one brand in
sales have crossed 10 lakh
per annum with its Splendor
4 Mansukhbhai Kothari of Kothari Products two-wheelers.
he saw that conceived the idea of introducing Paan Masala
paan-chiewers were facing
problem during
when
was not
available, not available of
or travelling because either paan (betel)
consuming activity. For such people, heright quality, or the process of preparing paan was a time-
branded as Paan introduced an alternative to
Parag. The product met with tremendous paan which was subsequently
2. success.
Adaptive
IS Concerned withApproach-This approach is basically remedial in nature.
solving problems of immediate The executive in this approach
This may imply bargaining with importance
suppliers, compromising with rather than developing long-range strategies.
groups within the
0) Decision organisation. The adaptive mode is
thus
competitors or reducing conflicts
making is basically meant for characterised by the following featuresamong
Adaptation problem
to meet the
process is adopted to
meet the threats by solving, rather than going for new
anticipated changes in environment which changed environment as against the opportunities.
(i1) Decisions decision making
are made in entrepreneurial
environmental changes. The basicsequential, incremental steps, one approach suggests.
pressing needs. orientation is to maintain thing at a time
necessitated by
(ii) Various interest flexibility to adapt the decisions to more
groups and
so as
to protect their, own stakeholders put
sometimes, at the cost of interests. Thus, the ultimateconsiderable pressure on
decision is a decision-making process
(iv) Since decision optimiaing organisation effectiveness. compromised one which
making. With the result, making is incremental and fragmented, there is may be,
In India, most systems approach of decision lack of
because of the
of the
public sector making is
missing. integrative decision cti
organisations follow Aduom is hes
Government. Those distribution inbetween organisations' adaptive
power approach in their decision
either based on visionorganisations the private sector which management and controlling making
and intuition or cannot
anticipate ministries of
follow this
approach in their strategic through formal and structured likely future scenarios
Suitability and Limitations-Adaptive decision-making process. approach of environmental analysis.
organisations which tend to play the role of approach of strategic decision making is
concerned. This approach saves followers rather the.role
of suitable for those
them from high
environmental factors. If these factors are leaders in the
risk since the strategic decisions are industry sector
less dynamic, this based on
However, this approach suffers from one approach produces satisfactory the actual
process works well so long as there is basic limitation. Environmental adaptation as a results.
quickly by the organisations adopting this continuity in environmental changes which can be continuous
assimilated
approach does not work because by the timeapproach. When the
the organisations environmental factors change fast, this
time, environment changes further adopt one change which has some lead
making previous adaptation unworkable. In the present context of
Introduction to Strategic Managemen 19

oloball competition, perhaps. this approuch is not very suitable to achieve meaningful competitive
advantage.
3, Planning Approach-The planning mode essentially involved decision-making in anticipation
the company wants to be in strategic decision-making in this approach is based on a
of future state that
study of the:
(a) fundamental socio-economic purposes of the organisation,
(b) values of top management,
(c)evaluation ofthe external and internal opportunities and problems, and
(d) evaluation of the company's strengths and weaknesses.
The following are the features of this approach:
upon the role of analysts and planners as
(i) Strategic decision-making under this approach depends
aids to the executives.
(ii) It involves a systematic and structured approaches to the solution problems.
of
decisions and strategies and
(iii) It is a comprehensive process which produces a set of integrated
ensures the development ofa strategic
direction.
 19. P'attern m a Strcam OT decisions and actions.

mportance of Strategic Management

The Strategic Management
of business will enable an
. It helps
integrate the behaviour of individuals intoorganization
a total
in the following
ways:
2 It gives a sense of effort.
long-term direction and provides a framework for
and short-term planning. guidance in medium-term
3. It allows for identification,
4 It minimizes the effects prioritization,
and exploitation of opportunities.
of adverse conditions and changes.
5. It is a conscious and a
rational management exercise, which involves
organization's objective and implementing its mission. defining and achieving an
6. It provides
a basis for çlarifying individual
It is the only means responsibilities.
by which the future opportunities and
management. problems can be anticipated by the
8 It focuses on
long-term issues, which affect the organization.
9 It allows major decisions to
better support established
10.
i.
It helps the
organization în managing risks and reducingobjectives.
risks.
It allows more effective
allocation of time and resources to identified
12. It gives a sense of
purpose leading to better quality of opportunities.
13. It allows fewer resources
and less time to be devoted to
management overall.
14. It encourages correcting erroneous or ad hoc decisions.
ereativity and initiative.
22 Introduction to Strategic Management
environment, identifying
. I t leads to
better analysis and diagnosis of the current and likely future
opportunities and threats.
16. It favourable attitude toward change.
encourages a
17. It will have positive impact on the long-term prosperity ofthe firm.
18. It provides an objective view of management problems.
19. It involves planning, implementation and control of an organization's strategy
20. It gives a degree of discipline and formality to the management of a business.
21. It creates a framework for internal communication among personnel.
22. It enables theorganization to,be more aware of its external environment and enables if to adapt
to achieve a better fit with its environment.
23. It encourages forward thinking.
24. It is concerned with implementation of
policies that are considered to be appropriate.
25. It represents a framework for
inmproved coordination and control of activities.
26. It is the adoption of a course of
action so as to achieve a given objective with the specified
reasons.